Mastering Your Retirement Income Planning
by SGL Financial
Our 2 Cents – Episode #144
Mastering Your Retirement Income Planning
On today’s episode of Our 2 Cents, we’re focusing on 5 key steps of income planning in retirement. In order to develop a proper plan for your retirement income, these are some of the first steps to follow to begin taking charge of your retirement cash flow.
- Mastering Your Retirement Income Planning:
- Step 1: Accurate budgeting is at the core of income planning
- Step 2: Visualize your future and how you will live in retirement
- Step 3: Identify your floor income sources and any shortfalls
- Step 4: Create “Now,” “Soon,” and “Later” buckets of money
- Step 5: Utilize appropriate strategies to generate income from investments
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Podcast Transcript
Announcer: You are listening to Our 2 Cents with the team from SGL Financial, Building Wealth for Life. Steve Lewit is the president of SGL Financial and Gabriel Lewit is the CEO. They’re here to discuss all the latest in financial news, trends, strategies, and more.
Gabriel Lewit: Hello. Welcome to Our 2 Cents. You’ve got Gabriel. You’ve got Steve.
Steve Lewit: Good morning.
Gabriel Lewit: You’ve got producer Katie in the background.
Steve Lewit: Good morning. Good afternoon.
Gabriel Lewit: Running the show she is.
Steve Lewit: I stole your line. Good morning. Good afternoon.
Gabriel Lewit: I had to switch up my line this morning.
Steve Lewit: I know, I know.
Gabriel Lewit: Just to throw everybody off.
Steve Lewit: Yes. Good morning. Well, it’s morning here, everybody.
Gabriel Lewit: Yeah, we hope you’re doing great. We hope you had a wonderful 4th of July week-
Steve Lewit: Yeah.
Gabriel Lewit: … last week. That’s part of why we didn’t do the show, because I was not here.
Steve Lewit: You were unavailable.
Gabriel Lewit: I was in Hilton Head Island, South Carolina on a family vacation.
Steve Lewit: Yeah. Part of which was on an airplane and an airport.
Gabriel Lewit: You’ve got your travel days, very fun with-
Steve Lewit: Three kids.
Gabriel Lewit: 7, 6, and three-year-old.
Steve Lewit: God bless you.
Gabriel Lewit: And three-hour plane delays and other fun things. Always fun, travel days with kids.
Steve Lewit: Yeah, I was thinking of you when you were at the airport and I said, “I remember what that was like.”
Gabriel Lewit: Oh, I’m ready to block it out.
Steve Lewit: Oh, not one of the fun.
Gabriel Lewit: Now, once you get to the destination, it was a lot of fun. But the travel days, not so much. And it’s also interesting, I think when, I don’t know if anybody else does this, I certainly do, but when I travel places, I’m always wondering what would it been like to live here? These people I’m visiting, but all the people that live there full time, what would that be like? Or would this be a good place to retire? I’m always thinking about these questions and Hilton Head was my first time there. It was very different than what I was expecting.
Steve Lewit: It’s pretty laid back.
Gabriel Lewit: Very, yeah. Very laid back. Not like your traditional beach boardwalk-
Steve Lewit: No, no.
Gabriel Lewit: … island.
Steve Lewit: Lot of golf.
Gabriel Lewit: Lot of golf.
Steve Lewit: Yep.
Gabriel Lewit: Very. We did go golfing once. It was 95 degrees and 90% humidity.
Steve Lewit: Oops.
Gabriel Lewit: It was a little brutal.
Steve Lewit: That’s brutal. Take the ice with me.
Gabriel Lewit: And I kept getting worried that alligators were going to rush out of the lagoons and the streams and come get me.
Steve Lewit: Well, they do show up on the golf course.
Gabriel Lewit: Yeah.
Steve Lewit: Yep. Yeah. But you had a great time?
Gabriel Lewit: I did. I had a very good time. Yeah, the kids-
Steve Lewit: Yeah. You came back looking all relaxed.
Gabriel Lewit: I got sunburned bad.
Steve Lewit: Very red.
Gabriel Lewit: Yep. The kids, my kids had their first swim in the ocean-
Steve Lewit: Oh, that’s so cool.
Gabriel Lewit: … of their entire lives.
Steve Lewit: That is very cool.
Gabriel Lewit: That was very cool.
Steve Lewit: Did they dive into the waves?
Gabriel Lewit: They got knocked over by the waves, but then they had their floaties on, but so they bobbed up and down like-
Steve Lewit: What you don’t know is that growing up in New York, we used to go to a beach called Rockaway and we used to go to 33rd Street and Rockaway, 34th Street I think it was. And we used to spend the day diving into the waves off the ocean.
Gabriel Lewit: Who’s we?
Steve Lewit: Me.
Gabriel Lewit: Not me, right?
Steve Lewit: Not us.
Gabriel Lewit: No, not Like-
Steve Lewit: No, we mean me and my friends.
Gabriel Lewit: Okay. Yeah. I thought you meant you and me.
Steve Lewit: Well, I should say my friends and I. My friends and I. Yeah. Not, no, not you and me. I deprived you of that.
Gabriel Lewit: Well, I’m glad you didn’t chuck your kid into the Rockaway Beach waters.
Steve Lewit: No, it’s why you are the way you are, because I deprived you of the joy of diving into waves in Rockaway Beach.
Gabriel Lewit: Was it fun?
Steve Lewit: It was a blast, because 34th street was all kids. It was like kid beach. There’s some cool beaches in New York that are just fantastic.
Gabriel Lewit: Yeah. Well, I digress a bit. I could keep talking about not financial things here, but we do have a show agenda here.
Steve Lewit: We do have a show, yes.
Gabriel Lewit: That we’re ready to get into here for you.
Steve Lewit: Excited and excited about it.
Gabriel Lewit: Yeah, of course. Well, we love talking money and finance and retirement, of course. And we love having you join us for that. Today we were brainstorming what we wanted to discuss and we had said, “We haven’t talked about income planning in a while.” And we get new listeners, we get new clients that start tuning into the show. We like to circle back from time to time and cover topics. Even if two years ago or a year and a half ago, we might have covered them. If you have heard some of this stuff before, it’s a good refresher and we’ll dive back into some of these great talking points.
Steve Lewit: Plus, the world changes, interest rates three years ago were rock bottom and now interest rates are different and that affects how you get your income.
Gabriel Lewit: Sure can. Yeah, so income planning for retirement, how do you master it is really the name of the game here today. And we won’t go into detail on the foundation piece here, but the foundation is budgeting. You’ve got to have a sense of how much you’re spending to do income planning at the very core of income planning. And this is the example I give a lot.
Steve Lewit: So boring.
Gabriel Lewit: It is. Well, imagine you said to me, “Gabe, my expenses are 80 grand a year. That’s what I need to solve for income.” But your expenses really were a 100,000 a year.
Steve Lewit: I hated doing my budgets.
Gabriel Lewit: You know?
Steve Lewit: Yeah.
Gabriel Lewit: That would be a huge 20,000 a year times 30 years of retirement is a huge potential swing in what you’re planning for, how much you’re targeting to have saved. Having the proper and the correct budget number is critical. And I just had a client two days ago came back in for a review. His younger, he’s still six, seven years away from retirement and his question was, am I still on track? And I said to him, he spends a good amount and makes good money so he can, but when he retires he’s going to have to control some of that spending. And I said, “Well, the truth is whether or not you can retire. The last budget you gave me said you could. Assuming you’re still spending that budget.”
Steve Lewit: I like the way you qualify that. I’ve had that same instance over the last budget said you could.
Gabriel Lewit: Your last budget that you gave me that said you were spending 80,000 a year.
Steve Lewit: Yep.
Gabriel Lewit: Showed you being good. But what you were telling me today is that you might be spending more than that. So, it might be a good idea to revisit and reconfirm with inflation and everything else what your budget is, so we can reassess if our cashflow projections for the future are accurate.
Steve Lewit: What’s amazing is I kid around when I say budgets are boring, I find I personally hate doing a budget.
Gabriel Lewit: I love it, but I’m a different breed.
Steve Lewit: But when we give out budgets, people say, “I spent six.” I had a client in last week that said he spends $135,000 a year. He just retired, sold his business. And it turns out that he was writing off a lot of expenses in his business. And all of a sudden he’s not spending 130, he’s spending 180. That’s a huge swing.
Gabriel Lewit: Yeah, 50 grand a year time 25 years. That might impact your cash flow.
Steve Lewit: It might. Budgets you say it’s a cornerstone. Absolutely it is. Most people don’t like to do them. Some people are oriented towards budgets, which makes it easy for us. But without the correct budget, it’s like getting in your car and not knowing how far your gas tank, how many miles can I drive on my gas and without having a mileage thing in there.
Gabriel Lewit: Yeah. Again, we won’t get into the particulars here of how to grade it or nuances of a budget review, all that good stuff. But suffice it to say that is step one, that is the foundation of your cashflow planning, the foundation of your retirement plan is really that important. It’s kind of why we talk about it so much here on the show.
Steve Lewit: And so do our clients.
Gabriel Lewit: Yeah.
Steve Lewit: Everybody we meet says, “Am I going to have enough income in retirement?” I mean, that’s a universal problem that everybody faces.
Gabriel Lewit: Yep. The second part to mastering cash flow for retirement, yes, is your budget today. But the second part is, what will that budget look like in 10 years, in 20 years? Will it shift and change? I always say there’s big items in there, but this isn’t just budgeting, it’s really more so visualizing your future. What do you want it to do? We’ve talked before on the show about different phases of retirement, the go-go years and then the slow-go years. And then for some, not too many, but for some the no-go years. And that’s a trajectory of how you spend and how you live in retirement based on when you’re younger and healthier and more energetic and finally done working. Right when you retire, those are your go get them go-go years.
Steve Lewit: Yeah, I want to travel, I want to read, I want to take classes, I want to volunteer, I want to do things.
Gabriel Lewit: We want you as part of this mastering cashflow exercise to ask yourself, “What do I really want to do in my retirement?” And the time to start to do those things is earlier in retirement, not later in retirement. Because gosh, I hate to say it, I’ve had stories of clients that had planned to do many things, unexpected health scares or issues swooped in out of left field and then they cannot do them. I’ve had clients, I’ve had had a spouse passed away and now they can’t do those things. They don’t want to do them on their own.
Steve Lewit: I have clients now that one, they had these wonderful plans. I mean, because they ran it by me, “Can we afford to do this?” And now she has or he has dementia and now they’re trying to squeeze all of that in while he’s able to do it.
Gabriel Lewit: And so, it’s not like we’re trying to scare you here that bad things are going to happen. Knock on wood here, they don’t happen to you or your family at all. But it is important to start to really think of those things that you want to do that are important to you, that are important to your relationship, and plan to do those early on in retirement.
Steve Lewit: And with your kids.
Gabriel Lewit: Or with your kids and-
Steve Lewit: Or grandkids.
Gabriel Lewit: And then start to figure out how much are those things going to cost me? Okay. Because that’s what we got to plan for, for your income are not just your normal budgetary items, but these wish list items, these goals, renovating your houses, big travel vacations. I got a client that wants to buy a race car, I’ve got a client that buys a boat. All these things, think about what they are and then we’ve got a plan to tackle those as we start to lay out your retirement income plan.
Steve Lewit: What I hear you saying, Gabriel, is there are two parts to this. One is the actual cash flow day to day. In other words, I spend 80 grand a year. I get 40 grand from social security. I don’t have rental income or pensions, unfortunately. I’m short $40,000 a year plus inflation each year. That 40,000 has to come out of my savings.
Gabriel Lewit: Yeah.
Steve Lewit: My investments.
Gabriel Lewit: Yeah. Just to reiterate what you said, if you have the accurate budget, then that’s one piece, and then you add up your income sources, social security pension. So we call non-investment-based income sources, what we call baseline floor income. This is from your book, by the way, The Perpetual Retirement Income Machine. A little plug there for you, Mr. Lewis.
Steve Lewit: Is that the best-selling Amazon book?
Gabriel Lewit: I don’t know about that, but it’s probably the best book on income planning I’ve ever read. I’ll go ahead and say that.
Steve Lewit: Me too.
Gabriel Lewit: And the best book that you’ve ever written on income planning.
Steve Lewit: It is, yes. And I think it’s the only book I ever wrote on income planning.
Gabriel Lewit: Well anyways, going back, if you know your floor income sources, you know your accurate budget as you just said now. Say you have 40,000 coming in from social security, 10 grand coming in from a pension. You’ve got 50 grand coming in, you need $80,000 from your budget. You were mentioning what we call an income gap is the term we use.
Steve Lewit: Or income shortfall.
Gabriel Lewit: Or income shortfall of $30,000 per year. And what we’re looking for is what is that income shortfall each and every year in the future as well as what it is today. And in the future it’s going to change and vary based on your budget shifts and based on these goals and objectives that you want to achieve.
Steve Lewit: If you have a year, I think I’ve mentioned this before, I had a client take his entire family to Hawaii. I mean it’s $130,000 event. That is not daily cash flow, but we planned that out.
Gabriel Lewit: You mean that’s not a typical daily event?
Steve Lewit: Well, I’m taking you and the fam. No, I’m not.
Gabriel Lewit: Hey.
Steve Lewit: We planned, maybe someday, we planned that out two years ahead of time. Just to make sure the money was free and the cash is there. Two kinds. You have an income shortfall or an income gap that comes out of your savings. And then you have large expenses, good ones like vacations and stuff like that. And not so good, like health reasons and things like that.
Gabriel Lewit: Yeah.
Steve Lewit: Okay.
Gabriel Lewit: And as you start to think through this cashflow, we like to call it, basically we break things into five-year segments or income buckets. Which would be income you need now first, next five years. Income you need soon. That’s years six through 10. So again, five year segments. And then income later. And that would be years 10 through 15 and beyond.
Steve Lewit: So now, soon, later.
Gabriel Lewit: And the reason we do this is going to transition into, okay, how do we generate this income which we’re going to talk about here? What are some of the strategies? And those strategies and how you generate income will depend on whether more of the income you need is now, soon, or later on down the road.
Steve Lewit: And each one of those, Gabriel gets invested differently. If I need income now, let’s say over the next five years I’m short, like you said, 30,000 a year. Over the next-
Gabriel Lewit: 150,000.
Steve Lewit: I’m short 150,000. Well, I don’t want to put that in the stock market, right?
Gabriel Lewit: Well, if you put it in an S&P 500 fund, your 150 and then it went down 20% last year, which would have put you at 120
Steve Lewit: And I’m pulling money out.
Gabriel Lewit: And then you pulled out your 30.
Steve Lewit: Right.
Gabriel Lewit: Now you have 90.
Steve Lewit: 90.
Gabriel Lewit: And you needed 150 for five years and you have 90 after the end of one.
Steve Lewit: And you’re done. You ain’t got it.
Gabriel Lewit: That’s a problem.
Steve Lewit: So, the shorter the time span, the less risky or the safer the investment has to be.
Gabriel Lewit: Yes. Yep.
Steve Lewit: Okay.
Gabriel Lewit: And this, of course, is our opinion on how we do this for our clients. There are other people that do it differently, but this is-
Steve Lewit: But they’re all wrong.
Gabriel Lewit: They’re all wrong. Yes.
Steve Lewit: They’re all wrong.
Gabriel Lewit: And this way has been so effective for our clients and for planning and for peace of mind. This really, really works.
Steve Lewit: Yes.
Gabriel Lewit: Yep. Okay, as far as again, creating that cashflow, income gap analysis, you want to look at all your sources of income. If you have rental properties, social security, pensions, spousal social security benefits. You want to look at if you have part-time work goals, are you going to work part-time? Do you get cash under the table? Some of our clients do some jobs and get under the table cash.
Steve Lewit: Oh, we don’t know anything about that.
Gabriel Lewit: We certainly don’t.
Steve Lewit: Do not.
Gabriel Lewit: And you get all sorts of different sources of income that you see. But most people, it’s typically social security, small pension, if any pension.
Steve Lewit: Maybe some rental income.
Gabriel Lewit: Possibly for a few, 10% of clients, 50% clients, some small rental income. And that’s about it. And now the rest has to come from your investments. We talked about bucketing for now, soon, later. What are the other strategies that can be used here, dad, for generating income? Now we’re talking about income planning. We know how much we need. We know when we need it. We’ve talked about our goals, we know our budget, we’re ready to go with creating our strategy for income. What do we do?
Steve Lewit: Okay, well, there are a lot of options.
Gabriel Lewit: And I do know the answer to that, by the way.
Steve Lewit: Oh, I thought I was teaching you. My God, are you a CFP? I think you are.
Gabriel Lewit: Yes, I am.
Steve Lewit: Yeah, I think you know your stuff.
Gabriel Lewit: That was me lobbing that question up for you.
Steve Lewit: The first way I’m going to hit it back to you is I’m going to give you an overhead, since you sent me a lob, by the way-
Gabriel Lewit: Mr. tennis man.
Steve Lewit: Yeah.
Gabriel Lewit: Was it Wimbledon playing?
Steve Lewit: Wimbledon is amazing. You should watch it a little bit.
Gabriel Lewit: Wasn’t it some 16-year-old girl who got to the semi-finals or something like that?
Steve Lewit: Yeah, I forgot her name. These athletes are just make me look, I play … People, I think you all know folks, I played professional tennis, but these athletes like-
Gabriel Lewit: You say play.
Steve Lewit: Played.
Gabriel Lewit: Played.
Steve Lewit: Played, played.
Gabriel Lewit: Well, I thought you said, “I play professional tennis.”
Steve Lewit: Played, in the past. Yeah, these athletes are just out of sight. Okay, so thank you for the lob. The most traditional way of doing this is to use what’s called a safe money withdrawal rate.
Gabriel Lewit: Yeah, this is a very traditional approach that you hear very commonly in news from gurus like Ramsey and Orman. And you hear it on articles you read. It’s very, very traditional. Not saying it’s the best here for folks for a second, we’ll get to that. But very, very, very popular for whatever reason.
Steve Lewit: It’s what’s always been done. In other words, let’s say you have a million dollars and the safe money withdrawal rate used to be 4%.
Gabriel Lewit: And there’s still arguments that it could still be four.
Steve Lewit: Well, the interest rates have come up.
Gabriel Lewit: Yep.
Steve Lewit: It was down at almost 3% two years ago, three years ago. But let’s say it’s 4%. And what they’re saying is, with a 60/40 portfolio, 60% equities and 40% bonds, you would be safe taking 4% or getting $40,000 a year adjusted for inflation out of your portfolio.
Gabriel Lewit: Yeah.
Steve Lewit: That’s what the theory is. And you’re going to say something about that, I know, Gaber.
Gabriel Lewit: Me?
Steve Lewit: Yeah.
Gabriel Lewit: Me say things? Never.
Steve Lewit: Never.
Gabriel Lewit: Well yeah, so technically the theory is a good one, right? It does work. But a lot of people-
Steve Lewit: It also doesn’t.
Gabriel Lewit: It also doesn’t. But a lot of people get it wrong and it has a lot of flaws. I mean, so everything has pros and cons. You and I are very transparent about that.
Steve Lewit: Sure.
Gabriel Lewit: What is the pro of this approach? It’s very simple, right? Anybody can pretty much do it. You listeners right now, you can do it in two seconds. Add up your nest egg, 500,000, 1,000,000, 750, let’s say a million dollars, like you said, multiply it by 4%.
Steve Lewit: And that’s your income.
Gabriel Lewit: A million dollars, 4%, $40,000. Now where people go wrong on this is it also depends on how your money’s invested. If you’ve got all stocks and you’ve got your money in CDs and this other person’s got their money in a 50/50 bond stock mix and they’re all using just 4%, they’re all going to have very different results. It’s not as simple as it seems. Because what’s funny is nobody out there knows anymore what the 4% rule was originally based on as far as an asset allocation mix. Everyone just hears, “Oh, it’s just 4%.”
Steve Lewit: Right. They forget, originally it was 60/40, but people forget that.
Gabriel Lewit: And some people do 4% with 100% stocks and some people do 4% with a bond portfolio and everyone’s getting it wrong, or a lot of people are getting it wrong.
Steve Lewit: And the other side of that Gabriel, is when the market goes down, if you’re using that approach, when the market goes down, then you start to worry about your income. In other words, there’s no peace of mind in that approach. Because the market goes down and you say, “Okay, now my million is worth 750. Do I take the 40,000 that I was taking off the million, or do I take 4%?”
Gabriel Lewit: No, it’s from the million. You’re still taking your 40, so your 750 goes to 710.
Steve Lewit: 710.
Gabriel Lewit: But you question yourself, am I going to-
Steve Lewit: “Can I, will I be okay?”
Gabriel Lewit: Well, the rule says it’s safe.
Steve Lewit: But I don’t feel safe.
Gabriel Lewit: It doesn’t feel safe. And-
Steve Lewit: Well, what many people do is they cut their income back.
Gabriel Lewit: They do.
Steve Lewit: It’s an approach which-
Gabriel Lewit: I’m only going to take 30 this year to be on the safe side.
Steve Lewit: We won’t take that vacation. You’re always looking over your shoulder to see if you have enough income to live on.
Gabriel Lewit: That’s the biggest drawback of that approach. But it is an option for you. What we do typically as a, I’ll say the next level up to the 4% rule is what we were talking about earlier, bucketing. When we talk about the big three or the big four income strategies, 4% systematic withdrawal rule is number one. Now that rule as a side note, if you have a lot of money and a very small withdrawal need-
Steve Lewit: Yeah. You could use it.
Gabriel Lewit: It’s not a bad option for you. But when you need 4% or higher from a withdrawal percentage, it’s a little bit risky, because of what you said, you’re going to feel like you can’t take that money out in down years.
Steve Lewit: Gabriel, folks in retirement, I believe this, although I’ve never retired, they just want peace of mind. They want to know they can do what they can do. Isn’t that right, folks? You want to know that if you going to take a vacation, you can take the vacation. And if the market’s down 30%, you can still take the vacation and not worry about it. And that’s where that rule just doesn’t work.
Gabriel Lewit: And I think to reiterate, I think when you’re in retirement, at least with my clients, most people aren’t, “Hey, how do I get 10, 12, 20% returns this year?” Think how do I not lose all my money and how do I make sure I can enjoy my retirement? Really becomes top focus.
Steve Lewit: We have the safe money withdrawal rate. And then you said we have buckets.
Gabriel Lewit: Buckets, we talked about those a bit. Just about allocating your money based on income now, income soon, income later into different asset allocations. We’re not get getting into the weeds on that here today. A third option is guaranteed retirement income, what you call a guaranteed income floor. In this case, if you have your income shortfall of 30,000 a year and you have a million dollars, for many people they say, “Okay, if I could get that $30,000 a year extra that I need guaranteed for the rest of my life-”
Steve Lewit: Like a pension.
Gabriel Lewit: Like a pension, they’d be very happy with that. And so many people do do this. They use an annuity. Some people don’t like them, some people love them and they have one really strong benefit, which is guaranteed income that you can never outlive without any market risk. And for many people that gives them the opposite of what they get with the 4% rule, which is security and peace of mind.
Steve Lewit: Yes, they don’t have to worry about their income.
Gabriel Lewit: They don’t have to worry about it. You allocate a little chunk of your money to generate that income, and then the rest is all play money.
Steve Lewit: Exactly. You have paychecks and you have “playchecks.” The paycheck is I’ve got my income. And then the rest, once you’ve got your income settled, especially if it’s all guaranteed, all your other money becomes play money. You want to buy that boat, go buy the boat. You want to go to the casino, go to the casino.
Gabriel Lewit: Why? Because if you lose it all or the boat breaks down and sinks-
Steve Lewit: Your income is still covered.
Gabriel Lewit: Your income is still there. That’s the benefit of that approach. Again, all three of these so far, 4% rule, buckets, guaranteed income, serve different purposes for different people. And then we have what we call a hybrid plan.
Steve Lewit: Yes.
Gabriel Lewit: And a hybrid plan uses elements of all of these. Sometimes you might have a little extra guaranteed income floor, you might have some of your money bucketed for short term, and then sometimes later on maybe your withdrawal needs are lower. You might just do a simpler systematic withdrawal route at that point in 15, 20 years. And so a hybrid plan can combine many of these different techniques altogether into a singular plan. But of course, that’s got to be mapped out, which is what we do.
Steve Lewit: I just want to add one more in, Gabriel, because a few weeks ago you and I were challenged by a client saying, “Why shouldn’t I use dividends?” And we had a really-
Gabriel Lewit: That’s really-
Steve Lewit: … interesting conversation with him, because he had some great ideas.
Gabriel Lewit: Well, that is a very, I guess if you say number five, if you will, so we’ve got systematic, we’ve got buckets, we’ve got guaranteed income floor, we’ve got hybrid plans, then you got dividend plans. Some people do like dividends, they’re not terrible, we don’t love them. Why? Similar to the 4% rule, it’s not guaranteed, it’s unpredictable. Okay. Dividends change, dividends can go up and down. The underlying value of the stock can drop. I had a client the other day say, “Hey, I’m in this great dividend fund I just bought last year, it’s paying 9%. What do you think about it?” I looked it up. It was an energy stock.
Steve Lewit: Yes.
Gabriel Lewit: It had just only recently raised the dividend to 9%. And 10 years ago, I think it was 10 years ago, something like that, the price of the stock had a 75% decline in the value of the stock. And I told her that. She’s like, “Oh, I don’t think I want to do that.” I said, “So you’d be okay.” Because prior to that I was like, “Would you be okay if,” let’s say she had a 100,000 a year and it’s generating some dividends, you’d be okay with a 100,000 turning to $20,000, even if it was still generating you the same dividends?” And she was like, “No, no.”
Steve Lewit: And to my client’s point, you could look at some dividend histories and they’re like, they never change, or they keep going up. But what goes up, you don’t know if it’s going to keep going up.
Gabriel Lewit: Yeah.
Steve Lewit: I mean, there are great companies that cut their dividends in 2008. It’s not that it doesn’t work-
Gabriel Lewit: And the risk with dividends, just to jump in is yet, while it’s working, it’s great, but here’s the risk and it’s real. If the company cuts the … Let’s say the price went … You’re getting your dividends, you’re happy. You got a million dollars in dividend stock and your bucket portfolio, whatever, dividend bucket. You’re getting, your dividends, prices drop 30, 40%. You’re still getting your dividends, you feel good. But all of a sudden those dividends get cut.
Steve Lewit: And the price is down.
Gabriel Lewit: And the price is down. And because what people say, “I’ll just find another dividend stock.”
Steve Lewit: But now you have less money to find the other dividend stock.
Gabriel Lewit: Yeah, as the dividends start to come down, you have to sell more of your shares, which means you have less dividends. And then if the price drops enough, you sell that to find your next one. It can spiral downwards on you fairly quickly if you’re not prepared for it. Again, it’s obviously an option.
Steve Lewit: I think the bottom line on all of this, Gabriel, is they all work. Which to me, which one gives you the most peace of mind? Because at the end of the day, that’s what we all want. We want peace of mind. Which one works for you, gives you the most peace of mind, takes the most moving parts out of it and uses your money more efficiently? And those are the three questions that have to be answered. And then you pick your strategy and you go with it.
Gabriel Lewit: And quite frankly, many people suffer from, they have no strategy. In other words, they get to retirement and they had all their money invested in whatever, and then they just pull out what they need-
Steve Lewit: That’s right.
Gabriel Lewit: And hope that it doesn’t run out.
Steve Lewit: We’ve been, I have clients that sometimes I get people in and say, “We’ve been doing okay up until now.”
Gabriel Lewit: And this is what’s interesting, while the going’s good, you can do that. You retire, you have your money in a target date fund in your 401(k), you need 50 grand. You don’t think about it, you pull out 50 grand. And then the next big market drop happens and then you’re questioning, “Oh, will this money last me? Maybe I can’t just pull out whatever I want to each year.” And that’s where having a plan, no matter what version it is, we help you map out dividends, guaranteed income, systematic withdrawal, buckets, hybrid plans. We will help you put that plan in place that will deliver you peace of mind over your retirement years, which is the ultimate goal of mastering your income planning.
Steve Lewit: Well said summary, Gabriel, excellent summary.
Gabriel Lewit: Thank you. Thank you, I tried.
Steve Lewit: You did good.
Gabriel Lewit: Well wow, that took us more time than I thought.
Steve Lewit: Yeah, it did. You want to squeeze in a question, or no-
Gabriel Lewit: Well, no, I don’t think, we’re going to run out of time here. Today I guess turned into a deep, we sometimes do deeper dive segments. This turned into one of those. We were going to talk about a few listener questions, folks, we will cover those on the next show and a few other topics. But let’s see, what else do we want to say about income, mastering your income planning? Anything else that we missed here today?
Steve Lewit: You already summarized, so anything we say now would be a-
Gabriel Lewit: Would be PS. This would be PS.
Steve Lewit: But that would be anti-climactic and not interesting to our listeners. When you summarize, you got to come up, unless we’re ready to end, you have to come up with something interesting to talk about for the next three or four or five minutes. This is your job.
Gabriel Lewit: I don’t have anything else interesting to say, so maybe we should wrap for today.
Steve Lewit: Well, I do too. I know you do have interesting things.
Gabriel Lewit: I’m just kidding. Yeah.
Steve Lewit: But to just squeeze them in, in two minutes is really, really hard.
Gabriel Lewit: And folks, there is a lot more to income planning than just this as well. Let’s say you have multiple tax types, which do you take when-
Steve Lewit: We didn’t.
Gabriel Lewit: There’s all sorts of things. More we can talk about.
Steve Lewit: We didn’t even talk about income sequencing and-
Gabriel Lewit: When to take your social security.
Steve Lewit: Right.
Gabriel Lewit: Yeah, there’s so many other parts too there.
Steve Lewit: And taxation on different kinds of implement.
Gabriel Lewit: Yeah. But we just wanted to cover the main strategies today from a high level, from a cash flow generation perspective.
Steve Lewit: So, you wrapped too soon?
Gabriel Lewit: I did. Well, now I’ll wrap again. We hope you got a good preliminary summary of all these things. And certainly, if we can help you map this out in greater detail. Obviously, many of you are clients of ours. We’ve done this. If you’re not, this is what we do. Give us a call, (847) 499-3330, or go to sglfinancial.com, click contact us.
Steve Lewit: Yes, do that.
Gabriel Lewit: And we can’t wait to hear from you.
Steve Lewit: Can’t wait.
Gabriel Lewit: If you have questions, thoughts, anything else you want us to share on the show, as always-
Steve Lewit: Question. Yeah, send your-
Gabriel Lewit: … want us to talk about-
Steve Lewit: We love your questions, so send them in.
Gabriel Lewit: Many of you do, keep sending them. Otherwise, have a wonderful rest of your week or weekend and we will talk to you on the next show.
Steve Lewit: Be well, everybody.
Gabriel Lewit: Bye now.
Steve Lewit: Bye.
Announcer: Thanks for listening to Our 2 Cents with Steve and Gabriel Lewit. For any questions about your finances, give SGL a call at (847) 499-3330, or visit us on the web at sglfinancial.com. And be sure to subscribe to join us on next week’s episode.
Prerecorded Voice: Investment Advisory Services are offered through SGL Financial, LLC, an SEC Registered Investment Advisor. Insurance and other financial products are offered separately through individually licensed and appointed agents.
